Vincent Osewe (Center) and Tamika employees.

NAIROBI, KENYA: The Small and Medium Enterprises (SMEs) are the driving force of economic development in Africa, accounting for 90 per cent of all businesses, 50 per cent of employment, and 40 per cent of GDP across the continent.
SMEs remain severely constrained in many developing countries, restricting business growth. Entrepreneurs report access to capital to be one of the toughest challenges, one that sometimes outranks electricity shortages and other concerns. As estimated by IFC’sMicro and Small Medium Enterprises (MSME) Gap Assessment report, the global gap in such funding is $5.2 trillion.
According to the African Development Bank Overall, only 20 per cent of the continent’s SMEs have a line a credit.  The total unmet need for credit in sub-Saharan Africa alone is close to $100 billion, the highest compared to other emerging markets, according to McKinsey. As the growth engine of economic development, the gap illustrates a major priority for African policymakers, lenders, and innovators.
Earlier this year while presenting Kenya’s Sh2.79 trillion budget for the financial year 2020-2021, Treasury Cabinet Secretary Ukur Yatani revealed that the government has allocated Sh3 billion seed capital to operationalise the SME Credit Guarantee Scheme, more than a year after it was formed.
The scheme is expected to offer affordable credit to small and medium enterprises in an efficient and structured manner.
“Despite their important contribution, this sector has continued to face challenges of accessing credit, due to lack of sufficient collateral, high cost of credit, and informal business structure. These challenges have been worsened by the Covid-19 Pandemic,” Yatani said.
The CS added that with reduced turnover and disruptions in the market and supply chains, many Micro, Small Medium Enterprises are unlikely to attract affordable and quality credit under the traditional arrangements.
Experts, however, argued that the amount will not be enough to sustain the sector.  The need to provide cheap credit to SMEs has opened a new venture for entrepreneurs in Kenya who have stepped in to offer financial loans to this target group. Vincent Osewe is one such entrepreneur who believes in scaling up credit access to SMEs for growth.
The Finance Director of Tamika Capital Limited is on a journey to spur the growth of local SMEs, he spoke to Rading Biko.

Is there a demand for funding and what is the supply size within the SME sector?
As the Kenyan economy is poised to embark on a period of relatively high growth, the demand rate for funding within the SME sector is rapidly increasing.
Indeed, SMEs’ important role in the economy has been long recognised; their contributions include job creation, poverty reduction, and the achievement of higher levels of economic development.
Despite all this, small and young firms have typically encountered obstacles to external financing. The financial sector has the role to channel credit affordably and efficiently to small and medium enterprises.
By considering demand, SMEs have been facing barriers to access external financing. First loans to SMEs are continuing to decline in some developing countries and stagnating in countries most affected by the global financial crisis. SMEs are particularly dependent on credit and cash flow, but they confront limits on borrowing funds because they are small and less diversified and have weaker financial structures.
SMEs are more credit-constrained than other more established firms and, therefore, have lower levels of productivity.
Indications that SMEs are financially constrained to include payment delays on receivables, declining liquidity, and an increase in SME insolvencies and bankruptcies. Besides the market signals that make SME sector unfavourable borrowers, firms find it difficult to always provide high-quality collateral or to ensure transparency to their creditworthiness.
Are credit rates offered in the market favourable for SMEs and what can be done to offer cheap credit to SMEs?
Big financial institutions play a critical role in growth and development in the SME sector. However, there is a concern about the cost of financing SMEs in terms of interest rates offered. With the rapid growth of the economy and rising unemployment rate, most of the Kenyan youths have ventured into entrepreneurship hence a rise in SMEs startups. Indeed, SME finance remains high on the political agenda, and governments are developing new policy initiatives to assist the SMEs access financing at a lower cost. Lower interest rate means that SME will look forward to more favourable rates on small business loans in addition to personal credit that might help fund business operations. However, SME tends to look for medium-size financial institutions that have flexible lending policies that attend to their business needs fully and as the need arises. SMEs can consider seeking new sources of financing from private equity and venture capital (VC) funds. The government has a critical role to play in offering grants to potential young and innovative firms in an attempt to facilitate cheap and affordable financing to the SME sector.
What line of credit do alternative institutions like yours offer?
SMEs is a wide sector of financing and has a high demand for credit facility. At Tamika Capital Limited, for instance, we have a wide range of products targeting to benefit that SMEs sector depending on their different level of business operations and growth stage. For startup SMEs, it is very critical to analyze and appraise the business growth and sustainability when financing hence collateral is necessary to secure the loan facility. For an existing business, it is very important to understand its ability to pay the loan facility through the analysis of its cash flows and business assets. Invoice financing helps SMEs to access our financing based on the outstanding invoices before they have been paid by their customers.
When one defaults on the loan, how do you recover your money?
The recovery on defaults is a critical process and may vary from customer to customer. It is in our policies to follow a professional and legal process in recovering a loan facility from any customer. At the early stage, we maintain consistent contact with the customer and always remain available when the customer needs our attention.  In a bid to offer the best customer service to our clients, we engage them to understand their financial position and attempt to assist in offering different options for recovering the money. We always remind our customers of the terms of the loan and the charges which occur in the case of default. In the recovery process, we understand the different types of customers in default and explore different options accordingly. The customers who are willing to settle their dues but their ability is limited, we offer various options like a restructure, rescheduling of the loan and a top-up.
At the moment how big is your market share in terms of client’s portfolio?
SME sector has a huge opportunity for the lending industry. The demand for loan facility has been increasing rapidly with the increase in SMEs all over the country.  Most of the entrepreneurs who decide to start up business are limited to financial ability and they tend to seek financial assistance from lending institutions. SME sector being our target market, we have major customer segments within Nairobi county and the neighbouring counties such as Kiambu county, Machakos county, Kajiando County, and Nakuru County.
Every business has a strategic expansion plan, what is the future like?
Lending platforms have become increasingly popular with consumers because they can provide better financial options for customers. The competition between the credit institutions has increased rapidly with the advancing technology. The future of lending will continue to be defined by the development of technology within the sector and the way it is applied by the fintech industry. Our main objective is to expand and achieve growth through continuous product innovation and by providing easy financial solutions to our clients.